Multi-process HRSourcing

Transform Is the New Norm

An ADP survey puts HR change and outsourcing under the microscope. 
 
 

By The Editors
 
Global business solution provider ADP’s annual survey of organizations around the world, now in its seventh year, examines trends in human resources and transformation practices (which is defined as any concerted effort to change and improve HR operations, whether through outsourcing, shared services, internal reengineering, or a combination of these strategies). The report offers a view of market shifts and changes in HR transformation, as well as a perspective on future plans.
 

Trending: HR Transformation Headlines
• HR transformation is on the rise again, following a dip in
2009; 85 percent of all respondents say they are engaged in HR transformation in some form, whether reengineering, outsourcing, shared services, or a hybrid approach. Slightly more than a third say they have been engaged in HR transformation for more than a year.
• While organizations in the Americas are still more likely to
be transforming HR than are those in other regions, the most significant year-over-year change has taken place in the Europe/Middle East/Africa (EMEA) region, with a 16-point increase in organizations saying they are engaged in HR transformation in 2010 over 2009.
• Those that are transforming HR most often adopt a hybrid
approach (41 percent), combining internal reengineering, shared services, and possibly outsourcing. Next most common is internal reengineering, with nearly one third engaging that strategy.
• Transformation strategies vary by region: Organizations in
the Americas are most likely to adopt a hybrid approach; those in the Asia Pacific (APAC) region most often employ internal reengineering; and EMEA organizations are the most diverse, employing a variety of approaches.
• The reasons organizations engage in HR transformation have
remained constant over years of research, the most common being to reduce or better manage costs. However, there are variations by region: Those in the Americas most often say their focus is to align the organization on common objectives and to free internal HR staff to focus on strategic issues; Asia Pacific-based respondents most often say it is to add and/or improve service for line management and employees or to respond to organizational changes; EMEA-headquartered organizations most often say they are engaged in HR transformation to reduce or better manage costs.
• Among those respondents who say they are not engaged in HR
transformation, most say the reason is that they are satisfied with their current organization or strategy.
 
 
Who Is Transforming?
After a dip in 2009, HR transformation appears to be on the rise again, with 85 percent of all respondents saying they are considering, in the process of, or finished with HR transformation. HR transformation activity remains down from its highest at 90 percent in 2008. On a regional basis, organizations in the Americas are slightly more likely than their counterparts in other regions to be engaged in HR transformation. However, survey results indicate activity is shifting by region.
 
 
The most significant change has been in the EMEA region, which has seen an increase in HR transformation activity: 87 percent of EMEA respondents say they are engaged in HR transformation, up from a low in 2009 of 71 percent. On the other hand, the APAC region has experienced a decline in HR transformation activity, from 93 percent in 2008 to 81 percent in 2010. HR transformation activity in the Americas is virtually unchanged at 89 percent of all respondents.
 
 
Among those organizations that have chosen not to engage in HR transformation, most often it is because they are satisfied with their current organization or solution (53 percent), HR is not a priority (26 percent), or transformation is considered too costly (24 percent). The order and magnitude of these reasons is largely unchanged between 2009 and 2010, although cost concerns were significantly up in 2009 over 2008, and appear to be waning in 2010. Cost was selected as a reason not to transform by no respondents in 2008, 40 percent of respondents in 2009, and 24 percent in 2010.
 
 
The highest percentage of respondents—40 percent—have been transforming HR for one to two years, and 64 percent have been transforming HR for a year or more. Predictably, generally the larger the company, the longer it has been transforming HR.
 
 
How Organizations Transform
Organizations are most often transforming HR through a hybrid approach of outsourcing, centralized services, and internal reengineering (40 percent selected this option). Next most common is internal reengineering (31 percent), followed by a predominantly shared services approach (23 percent), then by a predominantly outsourcing approach (6 percent).
 
 
This pattern is somewhat similar to the approach organizations noted in our 2009 research, when, likely due to the global economic recession, internal reengineering jumped from 19 percent of all respondents to 33 percent. While down slightly in 2010 to 31 percent, that approach remains strong. At the same time, outsourcing rose in 2009 over 2008, but is off again in 2010.
 
 
Transformation approaches vary somewhat by region. Organizations in the Americas are the most likely to engage in a hybrid approach (45 percent), while those in the APAC region are most likely to engage in internal reengineering (44 percent). Organizations headquartered in EMEA are much more diverse in their approach, with nearly equal portions engaging in hybrid (32 percent), internal reengineering (31 percent), and shared services (29 percent) approaches. In all regions, a transformation approach based predominantly on outsourcing is uncommon.
 
 
Why Organizations Transform
The main reasons organizations transform HR have remained fairly constant over the past several years, with reducing/better managing costs as the top reason for all but one year. (In 2008, cost management dropped to number three, which appears to have been an anomaly.) Other top reasons to transform HR, which remain consistent across the years, are adding/improving service for line managers and employees (52 percent), responding to organizational changes (52 percent), aligning the organization on common objectives (51 percent), and freeing internal HR staff to focus on strategic issues (51 percent).
 
 
Unlike in years past, this year’s results indicate some variation in response by region. Respondents from organizations based in the Americas most often say they are engaged in HR transformation to align the organization on common objectives and to free internal HR staff to focus on strategic issues (both are selected by 56 percent of respondents).
 
 
APAC-based respondents most often say they are engaged in HR transformation to add and/or improve service for line management and employees or to respond to organizational changes (both are selected by 65 percent of APAC respondents). EMEA-headquartered organizations most often say they are engaged in HR transformation to reduce/better manage costs (62 percent of EMEA respondents).
 
 
Transformation Outcomes
• HR transformation takes slightly longer and generates slightly
less savings than first anticipated, a finding that has remained unchanged across seven years of research.
• Organizations cite a variety of changes as the top reason for
slower-than-expected results, including management, leadership, and organizational shifts.
• Organizations realize the best results from HR transformation in
management areas, and the worst results in leveraging HR staff into more strategic areas.
• On the whole, respondents do not appear overly happy with
their HR transformation performance overall. On a five-point scale, the highest performing area (adding and/or improving service for line management and employees) achieves only a 2.89 score.
• That said, organizations generally report performing better
in areas that they deem important and less well in areas they deem unimportant, so it appears focus and resourcing are being thoughtfully applied.
• The main hurdles to successful HR transformation remain
unchanged over the years, with skills of existing HR staff topping the list. In the 2010 research, the next most common hurdle is underestimating the resources needed to transform.

Time and Savings
HR transformation takes slightly longer than anticipated to achieve, a result the study has reported throughout the seven years of conducting this research. Across all respondents, those responsible for HR transformation most often anticipate transformation taking one to two years (42 percent), while 32 percent actually achieve that result. Another quarter expect transformation to take three to four years, while 31 percent actually require that amount of time; and only 10 percent anticipate it taking more than four years, while more than a quarter actually require that amount of time. The remaining 23 percent anticipate transformation taking a year or less; only 11 percent actually achieve transformation in the timeframe. Organizations in different regions tend to follow similar patterns as the overall response, although APAC organizations appear to be more aggressive in both anticipated and actual transformation timing.
 
 
The most common reasons respondents cite HR transformation taking longer than anticipated to achieve include:
• Management/leadership/organizational changes impacted
transformation progress and timing.
• Transformation is/was more complex than expected.
• Staff turnover impacts (impacted) transformation progress and timing.
• The staff is/was too stretched to focus on transformation.
• Competing priorities impacts (impacted) transformation
progress and timing.
 
 
As with time-to-transform results, organizations often miss their cost savings expectations by a slim margin. A majority of respondents (62 percent) anticipate savings of between 6 percent and 25 percent (the majority anticipating savings of 16 percent and 25 percent), but 57 percent actually achieve those savings. While 14 percent anticipate the lowest level of savings (less than 5 percent savings), 20 percent say they actually achieve savings in that range. On the other end of the scale, however, virtually the same proportion of respondents anticipates and achieves savings of more than 35 percent.
 
 
Again here, while organizations in different regions generally follow similar patterns, there are regional differences. EMEA organizations tend to be most aggressive in their planning, with just over a third (35 percent) anticipating savings of more than 25 percent (versus 19 percent and 14 percent of APAC and Americas respondents, respectively, anticipating this level of savings). Interestingly, a higher proportion of EMEA respondents actually achieve savings of more than 25 percent (25 percent of EMEA respondents say they achieve that level of savings, versus 20 percent of APAC and 19 percent of Americas respondents). EMEA respondents are generally underperforming their expectations, while Americas and APAC respondents are outperforming their expectations, even if only slightly.
 
 
Outcomes Versus Expectations
Similar to prior years, respondents report best results from their HR transformation efforts in organizational management areas, including aligning the organization around common objectives (79 percent of respondents say they exceed or meet expectations in this area) and responding to organizational changes (73 percent meet or exceed expectations in this area). Respondents say they most often exceed expectations in adding or improving service for line management and employees; 22 percent of all respondents say they have exceeded expectations in that area.
 
 
On the other hand, respondents rate themselves worst at leveraging HR transformation to free internal HR staff to focus on strategic issues (46 percent say they fall below expectations in this area) and benefiting from a new technology to empower line management (42 percent say they fall below expectations in this area); 40 percent of respondents also say they are failing to access external sources of talent, expertise, or technology.
 
 
Applying a five-point scale to respondents’ performance (where performance that is far below expectations=1, and performance that far exceeds expectations=5), on the whole respondents are not terribly happy with their performance. The highest performing reported area, adding and/or improving service for line management and employees, achieves only 2.89 points on the five-point scale. The performance band is fairly narrow, though, as the lowest performing area, freeing internal HR staff to focus on strategic issues, scores 2.62 points on the five-point scale.
 
 
That said, organizations appear to be doing a reasonably good job of matching areas of importance to performance. Generally, organizations are performing best in the areas that they deem important, with the single exception being the objective of freeing internal HR staff to focus on strategic issues, which has the lowest reported performance of all key performance areas.
 
 
Hurdles to Transformation
Across all seven years of this research report, the main hurdles to HR transformation have remained unchanged, with skills of existing HR staff at the top of the list every year. Other top challenges continue to include underestimation of resources needed (52 percent), lack of adequate technology (41 percent), and internal bureaucracy (40 percent).
 
 
In 2009, the research noted a reversal of a trend seen in prior years. For the first time, it appeared that some challenges were declining. In 2008 we noted that seven of the 10 identified hurdles received higher responses between 2006 and 2008. In 2009, all but one (opposition from workers’ councils—and that had only a very slight increase) experienced a decrease (meaning fewer respondents selected almost every hurdle in 2009 versus what they noted in prior years). The 2010 results do not carry forward that trend; instead, we see a mixed bag, with some hurdles declining while others are increasing.
 
 
Overall, the proportion of respondents who selected skills of existing HR staff is virtually unchanged (62 percent in 2010; 63 percent in 2009). Underestimation of resources needed grew the most, with 52 percent selecting this challenge in 2010 versus 40 percent in 2009. Difficulty in dealing with national/cultural differences grew by 9 percentage points, from 20 percent in 2009 to 29 percent in 2010. Opposition from workers’ councils—never selected by many respondents from the start—dropped the most, from 13 percent in 2009 to 6 percent in 2010. Internal bureaucracy dropped by 6 points, from 46 percent in 2009 to 40 percent in 2010.
 
 
Regional differences in hurdles to HR transformation are fairly limited, with all three regions selecting the same two top hurdles: skills of existing HR staff as the number one (55 percent of Americas respondents; 84 percent of APAC respondents; 64 percent of EMEA respondents), and underestimation of the resources needed as number two (49 percent of Americas respondents; 56 percent of APAC respondents; 58 percent of EMEA respondents).
 
 
Inside Look at Outsourcing Practices
Across the past three years, the proportion of respondents who say they are currently outsourcing or considering outsourcing HR processes has slowly declined, from 65 percent in 2008 to 59 percent in 2009, and 54 percent in 2010. These declines in outsourcing do not appear to be impacted by organization size; various employee sizes experienced growth while others experienced decline, in no clear pattern.
 

HR outsourcing remains more common in the Americas (60 percent of respondents say they outsource or plan to outsource HR processes) than in either EMEA (54 percent) or APAC (42 percent). However, HR outsourcing has predominantly experienced a decline across all regions in recent years:
 
 
• The Americas has seen a precipitous and steady decline from 83
percent saying they are/are considering outsourcing in 2008 to 60 percent in 2010;
• APAC experienced a sharp increase in 2009 over 2008, from 33
percent to 56 percent outsourcing/considering outsourcing, but then a fairly steep decline to 42 percent in 2010;
• EMEA has seen a steady but very slow decline from 60 percent
saying they are/are considering outsourcing in 2008 to 56 percent in 2009, and 54 percent in 2010.

Transactional processes are more likely to be outsourced, while strategic processes are more often retained in-house, a finding that has been consistent across all years. With HR outsourcing on the whole down, a few individual processes experienced an increase in outsourcing between 2009 and 2010. The highest increase in outsourcing is in assessment/performance appraisal; although still uncommon, it saw an increase from 19 percent in 2009 to 26 percent of respondents in 2010. Payroll, always the most commonly outsourced HR process, also experienced an increase, from 80 percent in 2009 to 84 percent in 2010.
 

Leave administration saw the greatest decline, falling from 52 percent in 2009 to 34 percent in 2010. Recruitment/selection also saw a decline, down from 47 percent in 2009 to 37 percent in 2010.
 
 
Organizations in all regions are most likely to outsource/consider outsourcing payroll, and least likely to outsource/consider outsourcing the entire HR function. Health and welfare benefits show the greatest variation among regions, with 82 percent of APAC organizations outsourcing/considering outsourcing the process, versus Americas organizations (62 percent of respondents) and EMEA organizations (50 percent of respondents). EMEA organizations are more likely to outsource/consider outsourcing expatriate and relocation administration (62 percent of respondents) than are their counterparts in the other regions (55 percent for APAC; 35 percent for Americas). And, APAC respondents are more likely to outsource/consider outsourcing performance appraisal (42 percent of respondents) than are their colleagues in EMEA (34 percent of respondents) and the Americas (14 percent of respondents).
 
 
Provider Selection
Nearly three quarters (73 percent) of all respondents say they develop and/or maintain a specific process to identify and select their provider(s), down from 2009’s 87 percent. (It appears now that 2009, during which there was a significant jump over 2008’s 70 percent figure, may have been an anomaly.) These numbers do not vary significantly by region.
 

The last three years have seen a decline in the use of consultants or sourcing advisors. A significantly smaller percentage of respondents in 2010 say they engage a consultant or sourcing advisor than did in 2009–down to 36 percent from 51 percent in 2009 (and a nearly equal 49 percent in 2008). There is very little difference across regions in the use of consultants and sourcing advisors.
 
 
Just more than half of companies (51 percent) issue requests for information (RFIs) as a part of their provider selection process, down from 2009’s 65 percent and just about the same as 2008. Organizations in EMEA and the Americas are more likely to issue RFIs (56 percent and 51 percent, respectively) than are their APAC counterparts (42 percent of respondents).
 
 
As we have found over time, the issuing of requests for proposals (RFPs) is more common than the issuing of RFIs, with 65 percent of all respondents saying they do so. Here, too, the proportion is down from 2009, when 76 percent of all respondents indicated they issued RFPs. Again here, organizations in EMEA and the Americas are more likely to issue RFIs (68 percent of respondents from each region) than are their APAC counterparts (42 percent of respondents).

Provider Criteria
The top four provider selection criteria remain unchanged over the previous four years, although, as noted last year, they regularly change positions. In 2010, the top provider selection criterion is proven ability to meet service levels, followed by functional coverage and expertise (these two were in the reverse positions in 2009), then price followed by multi-country capabilities (each of which were in the same position in 2009). The only notable change between 2009 and 2010 is that size and market position have moved up in importance; while still not in the top of the list, that criterion moved from thirteenth position in 2009 to ninth in 2010.
 
 
Among the three regions, all rank the same criteria in the top three, although in different orders. Significant variances among the three regions are that respondents in the Americas and EMEA rank size and market position in the middle of the criteria set (eighth and seventh, respectively) while APAC respondents rank it near the bottom, thirteenth. Likewise, APAC and EMEA respondents rank cultural match in the middle of the criteria set (sixth and eighth, respectively), while Americas respondents rank it closer to the bottom, in the twelfth position.
 
 
Budgeting for Outsourcing
Organizations most often budget less than $1 million annually for HR outsourcing (41 percent of all respondents), followed by $1 million to $10 million (30 percent of all respondents). Another 13 percent budget $11 million to $20 million annually, and the remaining 16 percent budget $21 million or more annually.
 
 
Predictably, annual budgets generally correlate to organization size, with organizations with fewer employees budgeting less than those with more employees; organizations with 25,000 or more employees make up virtually all of the respondents who say they budget $21 million or more annually.
 
 
Analysis of year-over-year HR outsourcing budgets indicates growth at both ends of the budget scale, with an expanding proportion budgeting either less than $1 million or more than $11 million. (Employee sizes within the sample have remained fairly similar over time.)
 

Organizations in the Americas are likely to budget on the lower end of the scale when compared to their counterparts in other regions, with nearly half (47 percent) saying their HR outsourcing budget is less than $1 million.
 
 
Nearly half of all respondents (48 percent) say they expect to increase HR outsourcing budgets over the next three years. That percentage shows an increase over 2009, when it was 42 percent, but still does not match 2008’s 55 percent.
 
 
Most often, organizations say they expect budgets to increase by 10 percent to 24 percent (20 percent of all respondents); 17 percent say they anticipate an increase of less than 10 percent, and another 11 percent expect their HR outsourcing budgets to increase by more than 25 percent. Just over a third anticipate their HR outsourcing budgets to stay the same.
 
 
In spite of the fact that a smaller percentage say they are currently outsourcing or anticipate outsourcing HR services, during the last two years, the report has seen a significant decline in the proportion of respondents who say they anticipate their HR outsourcing budgets to decrease, coupled with a significant increase in the proportion of organizations that anticipate their budgets to stay the same.
 
 
EMEA organizations are more likely than their counterparts in other regions to anticipate an increase in their HR outsourcing budget, with 56 percent saying they expect an increase, versus 46 percent and 45 percent, respectively, for APAC and Americas organizations. On the other hand, organizations in the Americas, where HR outsourcing is generally more common and more entrenched, are least likely to expect a decrease in budget (10 percent for Americas organizations; 23 percent for APAC organizations; 17 percent for EMEA organizations).
 
 
Shared Services
Just about two-thirds of all respondents (66 percent) say they manage one or more HR processes through a shared services model. (This proportion is essentially unchanged from 2009’s 68 percent.)
 
 
As with outsourcing, organizations are more likely to manage transactional processes–such as payroll and HR information systems (HRIS)–in a shared services environment than they are strategic processes. As such, processes like career/succession planning and assessment/performance appraisal are considerably less likely to be managed through a shared services model. There have been no notable differences, by process, in likelihood to manage processes in a shared services model across the years of the research. While we might find that individual processes are more or less likely to be managed through shared services year-over-year, those processes generally rank in the same place within the overall list of HR processes.
 
 
Respondents from the Americas are more likely than are their counterparts in other regions to manage at least one HR process through a shared services model (71 percent of Americas respondents versus 56 percent of APAC respondents and 63 percent of EMEA respondents). That represents a change from last year, as well as a significant drop for APAC respondents, when 74 percent said they managed more HR processes through a shared services center.
 
 
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Tags: Multi-process HR, Sourcing

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